Question 1

Which of the following is normally disclosed as supplementary information on the Statement of Cash Flows?
A) cash paid for dividends during the year
B) depreciation expense for the year
C) property taxes paid during the year
D) cash paid for interest during the year

Accepted Answer

The answer of Which of the following is normally disclosed...

Question 2

Which of the following transactions or activities would not be reflected on the cash flow statement?
A) The company declared and paid shareholders a dividend.
B) The company paid interest on a loan.
C) The company repurchases it own shares.
D) The company purchased land with shares.

Accepted Answer

The purchase of land with shares would be reflected on the balance sheet as an increase in assets and an equal decrease in equity, but it would not impact the cash flow statement. Payment of dividends, payment of interest, and repurchase of shares all involve cash flows that would be reflected on the cash flow statement.

Question 3

The activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets is considered part of which of these activities on the Statement of Cash Flows?
A) Operating activities
B) Financing activities
C) Investing activities
D) none of these

Accepted Answer

Investing activities involve the purchase and sale of long-term assets such as property, plant, and equipment, investments in other companies or securities, and lending money to others. These activities are aimed at generating future income and enhancing the value of the company over extended periods of time. Operating activities involve the day-to-day activities of the company, such as sales, production, and expenses, while financing activities involve obtaining funds from lenders or investors and repaying them. None of these activities are related to investing resources in long-term assets.

Question 4

On the Statement of Cash Flows, which of the following would equal cash paid for income taxes?
A) income taxes payable plus change in cash
B) income taxes expense plus ending balance in income taxes payable
C) income taxes expense plus beginning balance in income taxes payable
D) income taxes expense plus change in income taxes payable

Accepted Answer

Cash paid for income taxes would be equal to the sum of income taxes expense and the change in income taxes payable (beginning balance minus ending balance). Option D includes both of these components. Option A includes the change in cash which is not relevant to calculating cash paid for income taxes. Option B includes only the ending balance in income taxes payable which does not provide the full picture of the cash paid for income taxes. Option C includes only the beginning balance in income taxes payable which again does not provide the full picture of the cash paid for income taxes.

Question 5

Obtaining resources for the corporation from investors or debt-holders and the return of resources to shareholders and debt-holders is considered part of which of these activities on the Statement of Cash Flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) none of these

Accepted Answer

Obtaining resources from investors or debt-holders is considered financing activity as it involves raising capital for the business. The return of resources to shareholders and debt-holders is also considered financing activity as it involves distribution of profits and repayment of debt. Therefore, option C (Financing activities) is the correct choice.

Question 6

Which of the following would be an example of an investing activity on the Statement of Cash Flows?
A) issuance of bonds payable
B) purchase of bonds as an investment
C) issuance of common shares
D) collection of rent from tenants

Accepted Answer

Purchasing bonds as an investment is an example of an investing activity because it involves the acquisition of a long-term asset (the bonds) with the intention of earning a return on the investment. Issuing bonds payable (A) and common shares (C) are examples of financing activities, while collecting rent from tenants (D) is an example of an operating activity.

Question 7

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?
A) increase in accounts payable
B) increase in prepaid expenses
C) loss on sale of investments
D) depreciation expense

Accepted Answer

An increase in prepaid expenses is deducted from net income in the indirect method because it represents a cash outflow that does not affect net income.

Question 8

Financing activities typically involve accounts classified as
A) current assets and current liabilities.
B) current liabilities and shareholders' equity.
C) long-term liabilities and shareholders' equity.
D) current liabilities and long-term liabilities.

Accepted Answer

Financing activities involve long-term liabilities such as bonds and loans, as well as shareholders' equity such as issuing stock. Current assets and liabilities are related to day-to-day operations, not financing activities.

Question 9

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?
A) increase in inventory
B) gain on sale of investments
C) decrease in wages payable
D) decrease in accounts receivable

Accepted Answer

The answer of Which of the following would be added...

Question 10

Under the indirect approach, adjustments must be made to net income in the operations section for all of the following items, except
A) depreciation.
B) gain on the sale of equipment.
C) loss on the sale of land.
D) proceeds for the issuance of preferred shares.

Accepted Answer

The issuance of preferred shares does not affect the net income in the operations section, so no adjustment is necessary. Depreciation, gain/loss on the sale of equipment, and gain/loss on the sale of land are all items that can affect net income and require adjustments under the indirect approach.

Question 11

Cash flows from financing activities include
A) proceeds received from sale of equipment.
B) proceeds received from sale of the company's shares.
C) purchase of land.
D) proceeds from the sale of shares of another company.

Accepted Answer

Proceeds received from the sale of the company's shares are considered financing activities because they involve raising capital to finance the company's operations or to fund its expansion.

Question 12

How should a gain on the sale of equipment be reflected in the operating section of the Statement of Cash Flows when using the indirect method?
A) as a deduction from net income
B) as a cash inflow
C) as an addition to net income
D) It is not reflected in the operating section.

Accepted Answer

Gains on the sale of equipment are deducted from net income in the operating section of the Statement of Cash Flows when using the indirect method. This is because the gain is considered a non-cash item that increased net income, but it did not result from operating activities.

Question 13

Which of the following would be an example of an investing activity on the Statement of Cash Flows?
A) purchase of capital assets
B) issuance of preferred shares
C) repurchase of shares issued
D) dividends paid to shareholders

Accepted Answer

Purchasing capital assets (such as property, plant, and equipment) is considered an investing activity because it involves investing in assets that are expected to generate future cash flows for the company. Issuing preferred shares (B) and repurchasing shares issued (C) are both financing activities, as they involve raising or returning capital from investors. Dividends paid to shareholders (D) is also a financing activity, as it involves returning profits to shareholders.

Question 14

Which of the following would be an example of a financing activity on the Statement of Cash Flows?
A) payment of rent to landlord
B) repayment of a loan from another company
C) receipt of interest on investments
D) sale of equipment

Accepted Answer

Repayment of a loan from another company is an example of a financing activity because it involves the issuance or repayment of debt.

Question 15

Investing activities typically involve accounts classified as
A) long-term assets.
B) long-term liabilities.
C) shareholders' equity.
D) short-term assets.

Accepted Answer

Investing activities involve the acquisition and disposal of long-term assets such as property, plant, and equipment, investments, and intangible assets. This includes purchases or sales of fixed assets, investments in other companies, and long-term loans made to other entities.

Question 16

Operating activities typically involve accounts classified as
A) current assets and current liabilities.
B) current assets and long-term liabilities.
C) long-term assets and current liabilities.
D) long-term assets and long-term liabilities.

Accepted Answer

Operating activities involve transactions related to the primary business operations and thus mostly involve current assets and current liabilities, such as accounts receivable, accounts payable, inventory, and salaries payable. Long-term assets and liabilities are usually not directly involved in operating activities but in investing and financing activities.

Question 17

The direct method of Statement of Cash Flows preparation is
A) widely used in practice.
B) preferred by standard setters.
C) misunderstood by investors.
D) inconsistent and provided different operating results.

Accepted Answer

The direct method of Statement of Cash Flows preparation is preferred by standard setters because it provides a clearer picture of cash flows from operating activities by listing major classes of gross cash receipts and payments.

Question 18

Cash equivalents includes everything, except
A) demand deposits.
B) money market funds.
C) short-term bank loan.
D) lines of credit.

Accepted Answer

The answer of Cash equivalents includes everything, except
A) demand deposits.
B)...

Question 19

If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance, this arrangement is a
A) bank overdraft.
B) demand loan.
C) long-term loan.
D) line of credit.

Accepted Answer

A line of credit is an arrangement between a company and a bank to borrow money as and when needed, up to a pre-approved limit. It is meant to help the company manage its cash flow fluctuations, particularly during months when it has a negative cash balance. A line of credit is different from a long-term loan, which generally has a set term and is used for larger amounts of money. A bank overdraft is a short-term borrowing arrangement in which a company can draw more than it has in its account, up to a pre-approved limit. A demand loan is a borrowing arrangement in which the lender can demand repayment at any time, and is typically used for short-term financing needs.

Question 20

Under the indirect approach, in preparing the cash from operations section of the Statement of Cash Flows, depreciation is added to net income because
A) it is not a cash expense.
B) it is a cash outflow.
C) it is a source of cash.
D) it is not an allowable expense in determining net income.

Accepted Answer

Depreciation is not a cash expense, but a non-cash expense. Therefore, it is added back to net income under the indirect approach to reflect the actual cash inflows and outflows.

Quiz 5: The Statement of Cash Flows

Which of the following is normally disclosed as supplementary information on the Statement of Cash Flows?

Which of the following transactions or activities would not be reflected on the cash flow statement?

The activities of a corporation that are directed to investing the resources of the corporation over extended periods of time in long-term assets is considered part of which of these activities on the Statement of Cash Flows?

On the Statement of Cash Flows, which of the following would equal cash paid for income taxes?

Obtaining resources for the corporation from investors or debt-holders and the return of resources to shareholders and debt-holders is considered part of which of these activities on the Statement of Cash Flows?

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Which of the following is a deduction from net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Financing activities typically involve accounts classified as

Which of the following would be added to net income when using the indirect approach to prepare the cash from operating activities of the Statement of Cash Flows?

Under the indirect approach, adjustments must be made to net income in the operations section for all of the following items, except

Cash flows from financing activities include

How should a gain on the sale of equipment be reflected in the operating section of the Statement of Cash Flows when using the indirect method?

Which of the following would be an example of an investing activity on the Statement of Cash Flows?

Which of the following would be an example of a financing activity on the Statement of Cash Flows?

Investing activities typically involve accounts classified as

Operating activities typically involve accounts classified as

The direct method of Statement of Cash Flows preparation is

Cash equivalents includes everything, except

If a company has made arrangements with a bank to borrow money in the months when they have a negative cash balance, this arrangement is a

Under the indirect approach, in preparing the cash from operations section of the Statement of Cash Flows, depreciation is added to net income because